The Influence of Profitability and Trading Volume of Day Traders on Index Futures Return and Volatility

Abstract

In this thesis we only consider day traders and use a unique dataset from TAIFEX to examine how well individuals and foreign institutions predict index futures returns and which type of investors cause more dramatic volatility of the index futures market in the period from 2006 to 2007 In addition the thesis also analyze the differences between male and female and further analyze sophisticated and less sophisticated individuals based on the disposition effect The results show that the predictive power of foreign institutions is better than that of individuals due to informational advantages or good timing ability In addition male and female groups do not have predictive power for the index futures return Furthermore we find that professional investors can predict current and the subsequent futures prices and they will possess a short position to gain profits when they become aware that the index futures price will go down From the perspective of volatility this thesis indicates that regardless of which type of investors’ trade in the futures market their trades will generate significant volatility on the index futures market However owing to holding large positions within one day foreign institutions’ trades may result in the futures market becoming more volatile when they close out their positions in one day

Date of Award	2017 May 31
Original language	English
Supervisor	Hung-chih Li (Supervisor)